Who Gets the House in a California Divorce?

When it comes to the marital home, divorcing couples have a few options to distribute this valuable asset.

Determining who will keep the family home-- or
whether it will be sold to a third party-- can be one of the most
difficult decisions in a divorce. A house is often the family’s most
valuable asset. In addition, people have an emotional attachment to
their home. And, when there are children involved, additional emotional
and practical considerations come into play.

There are many things
to keep in mind when figuring out who will keep the house or whether it
will be sold, including: where the children will live, whether either
spouse can afford to keep the house after the divorce, tax implications,
and reimbursements.

This article provides an overview of some of
these considerations. Because of the complexity of the issues that can
arise when dividing a house in a divorce, you should always consult with
an attorney for advice about what is best in your situation.

Whose House Is It?

The
first step in figuring out who will keep the home or whether it will be
sold to a third party is to determine who owns it. While this may sound
simple, in reality it is not always clear.

Community Property Presumption

In
California, there is a presumption that property acquired during the
marriage is "community property," which means the property is owned by
both spouses equally (unless one spouse acquired it through an
inheritance or gift).

In the most straightforward case, the
spouses bought the home together during marriage (using only community
property funds) and are both on the title. In this case, the home is
community property, and both spouses share an equal interest.

Sometimes,
however, facts regarding the ownership of a home are not that simple.
For example, in some cases, the title to a home purchased during
marriage is in the name of one spouse only. In this situation, the title
creates a presumption that the house is separate property and belongs
to the spouse whose name is on title.

The other spouse can
overcome this presumption by showing that the spouses had an agreement
or understanding that the house belonged to both of them, even though
they were not both on title. Rebutting the presumption created by title
can be very difficult, however, and requires strong evidence that the
intent was for the house to belong to both spouses.

Separate Property Owned before Marriage

When
a spouse buys a home before the marriage, that home is generally that
spouse’s separate property. However, the situation becomes more
complicated when the spouse who is not on title contributes money to the
mortgage or payments for improvements to the home during the marriage.
In this case, that spouse would have an interest in the home, which can
be significant, especially with a long marriage.

Who Gets the House in the Divorce?

If
the house is separate property, the owner-spouse will get the house. If
the house is community property, there are several ways it can be
divided, either by agreement or court order, in the divorce judgment.

Sell and Divide Profits

Spouses
can agree to sell their home and split the profits from the sale. This
is often the only feasible option when neither spouse is in a financial
position to own the home alone.

Buy Out

Another
option is for one spouse to take full ownership of the home and pay the
other spouse his or her share. The buying spouse will need to refinance
the home, so that the selling spouse is removed from the mortgage.

In
determining whether the buying spouse can afford to take on full
ownership of the home, many costs need to be considered, including:

monthly mortgage payments

insurance

utilities, repairs, maintenance, and

property taxes.

Tax
implications are also an important part of the financial equation. You
need to determine whether the buying spouse would be entitled to a
mortgage interest tax deduction.

For more information regarding eligibility for a mortgage interest deduction, see IRS publication 936.

In
addition, sometimes the court will order, or spouses’ will agree, to
include a provision that the selling spouse pay the mortgage as a form
of spousal support. If so, the spouse paying the mortgage can claim a
tax deduction for spousal support payments. The spouse keeping the home
would need to claim those payments as spousal support income, but still
may be eligible to claim a mortgage interest tax deduction.

You should contact a tax consultant for more precise information on these tax issues.

Spouses Stay on Title/Deferred Sale

When
the spouses have minor children in common, the court may make an order
that temporarily delays sale of the home. This is called a “deferred
sale of home” order. Under this scenario, both spouses continue to own
the home jointly for a set period, giving the custodial parent exclusive
use and possession of the home during this time. The purpose of a
deferred sale order is to minimize the impact of the divorce on the
children.

In considering a deferred sale order, the court first
must determine whether the spouses will be able to afford the payments
on the house after the divorce. The court will look at the spouses’
incomes, the availability of support, and other funds available to make
payments.

If the court finds that a deferred sale is financially
feasible, the court must then decide whether a deferred sale is
necessary to minimize the impact of the divorce on the children. The
court will consider all of the following factors:

the length of time the children have lived in the home

the children’s ages and grades in school

how close the home is to the children’s school, child care, and/or other services the children use

whether
the home has been modified to accommodate a physical disability of a
child or the custodial parent, such that moving homes would make it more
difficult for the custodial parent to meet the children’s needs

the emotional impact moving homes would have on the children

the extent to which the location of the home allows the parent living there to maintain employment

the financial ability of each spouse to obtain suitable housing

the tax consequences a delayed sale would have on each party

the negative financial impact a delayed sale would have on the parent not living in the home, and

any other factors that the court finds are relevant and fair to consider.

An order for a deferred sale will specify how long the order is in place, after which time the spouses will sell the home.

Reimbursement Issues

Whatever
the disposition of the home will be, when determining each spouse’s
interest in the home, the court will consider whether either spouse is
entitled to reimbursement from the other. A spouse may be entitled to
reimbursement in the following situations:

Community Funds Paid for Separate Property

As
discussed above, when a spouse purchases a home before marriage, it is
separate property. But, if community funds are used to make mortgage
payments or improve the separate property home during the marriage, the
other spouse acquires an interest in the home. During the divorce, the
court will use a formula to calculate that spouse’s interest in the
home, and the spouse will be reimbursed for those contributions.

Mortgage Payments after Separation (“Epstein Credits”)

Under
California law, the court can order that a spouse be reimbursed when he
or she uses separate property funds to pay the mortgage on a community
home after the date of separation and before the divorce, unless it
would be unfair and unreasonable for that spouse to expect
reimbursement.

For example, the court will not order reimbursement
if the spouses agree there will be no reimbursement, the payments were
intended as a gift, the spouse making the payments continued to live in
the home and the payments were not substantially greater than the rental
value of the home, or the payments were made in lieu of or as a form of
spousal support.

Charges for Exclusive Use and Possession of Family Home after Separation (“Watts Charges”)

A
spouse who has exclusive use and possession of the family home between
separation and divorce may be charged with the fair rental value of the
home for that time period, owing half of that value to the other spouse
when the property is divided.